Sense of relief among leaders despite fragility of situation

ANALYSIS:IT WAS the closest EU leaders came to an incident-free summit for a good many months: no fights, little enough aggravation.

The gargantuan battle against the debt debacle is not yet won but the authorities reckon they are gaining traction. “I really believe that on the financial crisis we are turning the page,” said French president Nicolas Sarkozy.

While anything Sarko says these days must be seen through the prism of his difficult re-election campaign, his assessment is mirrored by many of his counterparts.

Optimism has proved woefully misplaced in the past, of course. Among EU leaders, however, a touch of survivors’ relief is palpable. Only narrowly did they avoid the abyss last autumn.

“This is the first European Council meeting that I have been at which wasn’t dominated by talk of catastrophes, defaults, break-up of euros, and the demise of the euro zone or the euro itself,” said Taoiseach Enda Kenny.

“This actually was a very constructive, very normal council meeting without the usual steam that might be associated with these kind of meetings.”

Indeed, officials prowling the corridors of the Justus Lipsius building gauged a distinct lack of tension. Yet this is no time for relaxation. European Central Bank president Mario Draghi bluntly warned the leaders over dinner on Thursday night that the situation remained rather frail.

Draghi has bought time for Europe’s battle-weary leaders by flooding the financial system with €1 trillion in ultra-cheap emergency loans. But the ECB insists it will not go to the well again – and Draghi says it now falls to governments to complete the task.

We are in something of a holding pattern right now, although a unilateral move by Spanish prime minister Mariano Rajoy to ease his deficit-cutting target heralds potential for yet more strife.

Even so, a marked reduction in Spanish and Italian borrowing costs has given some leaders hope that the worst may be over. Whether that proves resilient will be crucial, and there are no guarantees there. Rajoy’s move points to trouble in Madrid and markets are still edgy.

ADVERTISEMENT

Then there is Greece. A result is awaited from a bond swap designed to cut its debt by up to €107 billion.

The expectation remains that private creditors will step forward in sufficient numbers to carry the deal but no one can really know until the offer closes next Thursday.

The prevailing sense is that Greece has been stabilised, at least temporarily. But Luxembourg’s prime minister, Jean-Claude Juncker, revealed a certain truth in the situation when he confirmed the existence of a back-up plan if the debt swap falls flat. “I don’t need to talk to everyone about plan B if we officially say that we want plan A to work,” he said.

Sarkozy decried this “odd declaration”, but it would be odder still if there was no backstop.

Further questions surround Juncker’s own intentions when his mandate as president of the euro zone finance ministers expires in June. The signals from camp Juncker suggest he will make way for another person, but high-level European officials are not yet convinced.

This was the summit, of course, at which Europe was to enlarge its rescue net. That did not happen. In spite of abundant tough talk from Berlin, high-level officials believe a climbdown is in prospect later this month.

There are few certainties in this game but Europe wants to settle the matter before an International Monetary Fund meeting in April at which its global members will discuss an increase in the IMF’s own firepower. The global powers will not budge if Europe (ie Germany) does not budge first.

Besides acknowledging that more needs to be done, German chancellor Angela Merkel gave little away. “We are still in a fragile situation,” she said.

“The situation is somewhat calmer but the crisis has not at all been overcome. Further steps are necessary.”